Central Asia. Azerbaijan’s Cement Industry
Central Asia is the region represented by former Soviet Union republic with relatively weak economies. The overall population of the region is about 76 million as of 2015. Despite being relatively close to each other, these countries do not progress equally in terms of economic growth. All Central Asia countries are focusing heavily on the construction industry and thus require cement which is produced by a large extent domestically.
The Overview of Azerbaijan
As of 2016, the population of Azerbaijan is estimated at 9.7 million people. The economy is reliant on fossil fuel mining and, due to the abundance of said resources, the country managed to increase its GDP by 2.8% in 2014 with GDP per capita being close to $17.8 thousand. The country showed spectacular jumps in GDP for 3 years in a row from 2004 to 2007 averaging a 28.6% growth annually (refer to figure 1). The growth slowed down significantly, but the country has never been on a decline in terms of GDP. Lately, the economy has been stagnating showing only 2-4% growth of GDP annually. The country is rumored to be plagued with corruption. A nation-wide referendum cancelled the limitations of the presidential term.
The Cement Industry of Azerbaijan
Three main cement manufacturing facilities are capable of producing 4.7 million tons of cement per year. Note that 2 facilities are only 2 years old and established in 2013. These are Norm Sement and Akkord Cement. The oldest cement plan in the country is Holcim Azerbaijan.
The cement industry of this country has been developing unevenly according to a fluctuating demand. The country has been struggling with creating a cohesive plan of the infrastructural development. Housing and commercial facilities were always dependent on the condition of the national oil and gas industries. Due to financial problems across the region, the government struggled to satisfy the needs of the local business in terms of both infrastructure and proper taxation. Inconvertible currency has been a big issue for local manufacturers as well. In 2014, the production of various construction materials increased by over 22% and reached a notable $585 million mark. The cement industry showed a respectable growth of 40.5% mostly due to the fact that new facilities started to operate within the country. At the same time, gypsum manufacturing also grew by 23%.
The domestic market of cement is stagnating with the demand staying the same for the period from 2013 to 2015. The CEO of Norm Sement Hasan Yalcinkaya said that roughly 40% of all cement used within the country has been imported. However, the demand is now covered since two additional cement plants started operating in the country. This means that the import is less needed and has been reduced to less than 5% share of the overall consumption. At the same time, less than 10% of clinker is delivered from other countries. The dynamics of the market promise a good future to the cement industry of Azerbaijan.
The impact of new cement facilities is easily demonstrated in the statement by Osman Nemeli from Norm Sement where he says that the volume of import was cut by 72% during 2015 and likely to be minimized by the end of 2016.
The cement industry of Azerbaijan recognizes the demand and the potential of the industry. The country plans to double the amount of construction materials manufactured in 3 years from now, by 2019. The government wants to improve the quality of the products manufactured domestically and bring them up to the international level while actively promoting their export. The country plans to invest in the industry and search for independent investors to sustain the plan and make sure that the goal is achievable.
The expected growth of the industry is 6.1% in 2016. Azerbaijan estimates the volume of the market to be around $600 million mark by the beginning of 2017. Consequent years should demonstrate a steady increase in production with planned 13.1% in 2017 and over 20% in 2018. It is expected that the country will reach the $1 billion mark in 2019. Simultaneously, the government is concerned with potential decrease in the construction domain in the nearest future. This means that without proper financing and exporting, the cement industry will be in danger. The growth of the industry is impossible without a steady demand and Azerbaijan may not be able to provide just that.
The main driving factors in the domestic construction industry is the combination of sports and tourism. The country received a good boost from both Eurovision Song Contest hosted by Azerbaijan in 2012, All-European Games in 2015, and Baku Euro Grand Prix in 2016. The country will host 4 games during the EURO2016, one of the biggest football championships in the world. The stream of various sporting and cultural events should help the construction industry to keep up the demand for building materials and road building equipment. When restaurants and hotels are being built all over the place, the demand for high quality cement inevitably goes up.
Norm Cement Plant
Situated in Garadagh, Baku, this facility is capable of producing over 2Mt of cement per year. The manufacturing cycle had been dependent on clinker imported from other countries in 2013, but in 2014 the company started producing clinker as well. It took 2 years to reach the production capacity that was initially planned. With modern equipment (cement kilns, lime production lines) and great management, the company managed to take a respectable 30% share of the market by 2015.
The management of the company believes that 2014 was quite resultative for both the company and the domestic cement industry in general. Yalcinkaya said that he was pleased with the fact that the company grew quickly and managed to start its own clinker production line. The CEO also reported that the plant produced over half million tons of cement and 470 thousand tons of clinker in 2014 covering over 20% of the domestic demand for cement and clinker. The company plans to heavily improve the quality of the product in the nearest future to expand its market share dramatically.
Norm Sement has a robust development plan that involves investing in various production areas: improving energy efficiency, expanding the assortment of products manufactured, and reducing fuel consumption. The company plans to expand their list of offerings with the addition of white cement and oil well cement. Azerbaijan’s main sources of income are oil and gas industries that require respectable amounts of the product to operate and continue growing. Norm Sement is definitely aiming at the right audience.
The facility is more than ready to work closely with both domestic and foreign customers. The company plans to start supplying cement to Caspian Sea region, Russia, and Central Asia.
The management also recognizes that there is always room for improvement and wants to implement a waste heat recovery complex in order to use excess heat to generate electricity.
In 1949, due to the need for cement in the Central Asia region, Soviet Union installed a large cement plant in Baku. Up until 2010s, this plan was the only large cement manufacturing facility in the country. The plant was purchased by LafargeHolcim group in 2012 and renamed to Holcim Azerbaijan. The production line had been reinvigorated by the addition of new equipment including modern kilns and automated material handling solutions.
In 2014, the competition was tough and the company failed to meet the expectations demonstrating decreases in both profits and sales volume. Selling 24% less and generating 23% less in profits are definitely not the best possible results for the company. However, the facility managed to cut the losses by lowering both fuel and electricity consumption by 12-17%.
Established in 2005, Akkord Corporation quickly entered the market of construction materials manufacturing a wide array of products including concrete, gypsum, steel, etc. The company decided to install the cement production plant in Dash Salahil with the installed capacity being close to 1Mt per year. Despite being the smallest facility, the plant is covering both the domestic demand and foreign interest. The capacity is planned to be expanded to up to 3Mt per year in 2017.